MW Investors are now learning a painful lesson: Buying a dip driven by geopolitics isn't a slam dunk.
By Joseph Adinolfi
The unwinding of popular retail momentum trades is interrupting the brief U.S. stock-market rebound
Selloffs driven by geopolitical shocks are typically seen as dips worth buying, but investors are learning Tuesday that's not always the case.
Investors rushed to buy U.S. stocks on Monday after the U.S. and Israeli bombardment of Iran helped inspire a global selloff.
Turns out that may have been short-sighted - even if it's understandable.
The S&P 500 index SPX on Tuesday was off 2.2% at around 6,727, on track to close at its lowest level of 2026. The Nasdaq composite COMP was off 2.4% and the Dow Jones Industrial Average DJIA was down more than 1,10 points, or 2.3%.
For years, investors have been conditioned to immediately buy any dip driven by geopolitics. Stocks last year were able to quickly shake off losses from the 12-day U.S. conflict with Iran. Even the attack by Hamas on Israel on Oct. 7, 2023, drove a dip that was bought almost immediately. Sudden jumps in the price of oil have followed a similar pattern, with the initial spike being quickly reversed.
See: As global markets tanked over Iran, U.S. stocks were mostly unscathed. Here's why.
The table below, which has been updated over the years by a team of Deutsche Bank strategists, shows that this instinct is well-grounded in history. Selloffs driven by geopolitics have generally been short-lived, with U.S. stocks typically higher one month later.
There have been examples, however, when stocks trended lower over time. The selloff that followed Russia's invasion of Ukraine is a notable one: U.S. stocks were lower 12 months after the assault began in February 2022. Stocks behaved similarly after 9/11 - although that happened to coincide with a deflating technology bubble.
This time, U.S. stocks could still see a quick turnaround. And plenty of people on Wall Street expect major U.S. indexes to fare OK and maybe even outperform their European and Asian rivals over the coming months. Still, many were learning a hard lesson on Tuesday about overreliance on historical patterns.
"Pavlov's bulls came out in full force yesterday, ripping stocks at bad levels on the worn-out idea that geopolitics is always a fade," said Brent Donnelly, president of Spectra Markets, in commentary shared with MarketWatch.
In finance parlance, traders "fade" a move in a given asset or index by betting that it will quickly reverse.
While it may be "a fade when there is visibility on the endgame," Donnelly said, the Iran conflict has a bit of a "Russia invades Ukraine vibe where some thought it would be a cakewalk and perhaps that's wrong. Decapitation and regime change are not the same thing."
Stocks trading in Asia and Europe got hammered overnight as energy prices continued to climb. The fact that the outcome of the U.S. attack on Iran is uncertain was helping to push prices higher, as shipping through the Strait of Hormuz remain stalled and major production shutdowns in the region add to the upward pressure. President Donald Trump said that the U.S. has enough missiles and military hardware on hand to keep the assault going "forever."
A particularly sharp selloff in South Korean stocks likely spilled over into the U.S. by upsetting the popular trade in memory-semiconductor names like Sandisk $(SNDK)$ and Micron Technology $(MU)$. Two South Korean stocks, Samsung and SK Hynix, have been major beneficiaries of the booming global demand for memory chips. Perhaps equally important is that individual investors in South Korea are also heavily invested in the U.S. They have demonstrated a particular fondness for leveraged exchange-traded funds and speculative stocks, including companies in the quantum-computing space. South Korea's KOSPI index KR:180721 finished down by more than 7% on Tuesday. Both Samsung (KR:005930) and SK Hynix (KR:000660) registered double-digit declines.
South Korea wasn't the only popular retail-driven momentum play to hit the skids on Tuesday. Silver futures (SI00) were down by double digits. Shares of more speculative U.S. stocks like Oklo $(OKLO)$, a pre-revenue company dedicated to building small modular nuclear reactors, were also hit hard. The company's shares were down by more than 6% in recent trading after gaining nearly 3% on Monday, FactSet data showed.
"We continue to witness an endless series of mini retail bubbles with silver the most recent burst ($121 down to $71) and now the KOSPI," Donnelly said.
-Joseph Adinolfi
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 03, 2026 11:04 ET (16:04 GMT)
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